HMRC chief insists new data grab will bring taxpayer benefits

HM Revenue & Customs could have helped more self-employed people gain quicker access to pandemic support funds if it had been able to collect data under its Making Tax Digital programme, its chief executive said.

The Coronavirus Job Retention Scheme, which compensated employers for furloughed workers, was up and running by April 2020, four weeks after the first lockdown announcement. But self-employed people had to wait a further month before the launch of the Self-Employment Income Support Scheme (SEISS), which helped about 2.7m to stay afloat during the pandemic.

Even then, up to 3m self-employed people were not eligible to claim funds under the scheme. Many of these were those who had not filed a tax return the previous tax year, because they had just started working for themselves when the pandemic struck. That made it difficult for HMRC to verify their earnings.

Jim Harra, HMRC chief executive, told the Financial Times the tax authority could have responded quicker to the needs of the self-employed if it had had more real-time information on their income, as it has for employees.

“Making Tax Digital for self-assessment means that businesses will be providing us with data about their business income much more frequently than they have been in the past, much more in real time,” Harra said. “And yes, I think if we’d had that data, we could have helped more people.”

Through its Making Tax Digital (MTD) programme, the government aims to make the UK one of the most digitally advanced tax administrations in the world. It requires businesses and individuals to keep digital records and report their income to HMRC every quarter. It has already been rolled out to some VAT-paying businesses, with all VAT businesses required to sign up by April 2022.

MTD was due to be further expanded to around 4.3m self-employed people and small businesses, using self-assessment, in April 2023. However, the launch was pushed back by a year after professional bodies and business groups warned people were not yet prepared for the changes.

Harra said that in his position as a tax administrator he wished he could move faster on the strategy. But it was also important to “get it right” and give people and businesses more time if they needed it, he added.

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Addressing concerns over data privacy, he said HMRC’s push for more taxpayer data should be seen as an opportunity to make the tax system simpler and easier to use for millions.

“People often think of HMRC having data meaning ‘oh right, they’re going to sort of snoop on me and try and catch me’, he said. “But actually, I think, what we did during the pandemic on support, we can equally do on the tax system. We can use real time data to help people as well, make their lives easier.”

He acknowledged that the public still needed to be persuaded about that. “We’ve got to convince people,” he said.

HMRC has data problems of its own. Its annual report, published this month, revealed it considers its data protection compliance as a “red” risk — the highest level.

Asked how people could trust HMRC with their data if the tax office was itself concerned about data security, Harra said the government was aware of the issue and had provided funding to improve HMRC’s IT systems. Around £1bn was approved by chancellor Rishi Sunak in his recent spending review to improve HMRC’s IT and data security over the next parliament.

“We have an extremely low appetite for any risk in relation to our customer data,” Harra added. “It’s just something we’re constantly vigilant about.”